(Adds details on activity and updates prices)
* Loonie rises 0.2 percent against the U.S. dollar
* Price of U.S. oil climbs 1.4 percent
* Canada's 10-year yield hits 21-month low at 1.667 percent
By Fergal Smith
TORONTO, March 20 (Reuters) - The Canadian dollar
strengthened against its U.S. counterpart on Wednesday as oil
prices rose and the greenback was pressured by a more
dovish-than-expected interest rate announcement from the Federal
Reserve.
The Fed brought its three-year drive to tighten monetary
policy to an abrupt end, abandoning projections for any interest
rate hikes this year amid signs of an economic slowdown, and
saying it would halt the steady decline of its balance sheet in
September.
The U.S. dollar hit its lowest level in more than six
weeks against a basket of major currencies.
The price of oil, one of Canada's major exports, was boosted
by U.S. government data that showed tightening domestic oil
supplies. U.S. crude oil futures settled 1.4 percent
higher at $59.83 a barrel.
At 5 p.m. (2100 GMT), the Canadian dollar was
trading 0.2 percent higher at 1.3304 to the greenback, or 75.17
U.S. cents. The currency traded in a range of 1.3258 to 1.3347.
The modest gain for the loonie came one day after Canadian
Prime Minister Justin Trudeau's government lavished new spending
on middle-class voters in its budget on Tuesday as it forecast a
bigger fiscal deficit of C$19.8 billion in 2019-20.
The budget contained spending measures that could lift gross
domestic product by 0.2 percent this year, which is "not enough
to move the dial on Bank of Canada policy," Sal Guatieri, a
senior economist at BMO Capital Markets, said in a note.
The market has shifted from expecting further rate hikes
from the Bank of Canada, which has tightened by 125 basis points
since July 2017, to seeing potential for a rate cut as data
showed a slowdown in the country's economy.
Canada said on Tuesday it would issue nearly 20 percent more
bonds in the coming fiscal year to help the Liberal government
fund its spending programs.
Canadian government bond prices were higher across the yield
curve on Wednesday in sympathy with U.S. Treasuries. The
two-year rose 8.5 Canadian cents to yield 1.602
percent and the 10-year climbed 53 Canadian cents to
yield 1.667 percent, its lowest since June 2017.
Canada's inflation report for February and January retail
sales data are due on Friday.
(Reporting by Fergal Smith; Editing by Peter Cooney)